With all deals, the thing to look for is who benefits. In the case of the Lion Nathan bid for Coca Cola Amatil it’s neither company. It’s one group alone who benefits and that’s Lion’s 46% shareholder, Kirin of Japan.
It is also a highly questionable deal in that Lion Nathan (with the guarantee from Kirin) will need to borrow well over $700 million from banks to complete the cash part of the huge deal. The statement on the Kirin website carried this statement about the debt: “A limited amount of transaction debt for which LN has obtained committed bank facilities.”
Lion Nathan and its advisers should immediately disclose the banks funding the deal, how much, interest rate and whether this borrowing is effectively underwritten by the Federal Government’s guarantee on bank deposits and wholesale borrowings from offshore.
That begs the question of which banks are prepared to lend more than $700 million on an non-essential takeover. Their managements should have to explain why they are prepared to extend hundreds of millions of dollars in debt to Lion Nathan, and not to Australian companies which are saying it is harder and harder to get credit for working capital, trade and other transactions.
They banks rightly wouldn’t keep the likes of Allco or ABC Learning alive, but Centro is on its knees, as is Babcock and Brown. These are extreme cases, but the National Australia Bank did report last week in its monthly business survey that 25% of respondents had reported it harder to get credit and 35% expected to find it tougher to get credit in the coming month.
So are the banks funding Lion Nathan prepared to lend to small Australian companies? If not, why not. Are they prepared to lend to Australian home owners on reasonable terms, both current and prospective owners? And if they have the cash to lend to a foreign-controlled company, why can’t they also cut interest rates on car loans, credit cards and loans to small business where rates haven’t followed the 2% of cuts from the Reserve Bank?
Even if the cash is coming from offshore, those borrowings are guaranteed by the Government for the next three years; and if the loans come from foreign banks not part of the guarantee system, it makes a mockery of all those claims that these banks are preparing to leave the country, taking their loans with them, or were being hurt by the guarantee as they lost funds to local banks.
This is the first major transaction to occur where a large cash component is involved since the Lehman Brothers collapse two months ago turned a credit crunch into a freeze and wrecked global and domestic credit markets around the world. Australian taxpayers have become involved in banking through the explicit guarantees on deposits and offshore wholesale funding; its about time the banks realised that and their responsibilities.
Only John Durie in The Australian got it right this morning.
The deal would also need to overcome Australian Competition and Consumer Commission concerns over concentration in the drinks distribution business and also in the beverages business. Through both companies Kirin will have significant stakes in beer, soft drinks, milk and some stakes in wines, spirits and alcopops.
The attitude of Heineken which has a licensing agreement with Lion Nathan, and SABMiller which has a joint venture with Coca Cola, will also be potential hurdles: both are bitter competitors in Europe and Asia and won’t want to be in the same tent.
Indeed this is one area of the beer market where the ACCC could force asset sales as Lion and CCL have a very strong presence.